As to liquidity risk, it is taken as faith loss in the banks of depositors. Traditionally, when there is a bank insolvent, firstly because of the worries from depositors about the run of the bank, then because of the following large amount of deposits outflows, there the bank comes to the liquidity risk. The misconstruction of revenues and outlays and the mis-composition of capital lead to liquidity risk (Holmstrom and Tirele, 1998; Yang and Wang, 2011). Nowadays, the liquidity risk more comes from the lending and interbank financial arrangements (Mathias and Kleopatra, 2010; Philip, 2012). These understandings of liquidity risk related to banks may be summarized as forms of the funding liquidity risk. According to IMF (2008), banks facing funding liquidity risk cannot service their liabilities as they fall due. Banks are known to be subject to this risk since Bagehot(1873). The other form of liquidity risk is asset liquidity risk, which means transactions cannot be executed because of the illiquidity of the underlying (Jorge, Srobona & Li, 2007; Gregory, 2010, p.2).
It is obvious that banks with liquidity risk have problems in meeting its current and future, expected or unexpected, cash flows without affecting its daily operations. It will also be difficult for those banks to keep ideal composition of its assets and debts and to transform the debt maturity. All these hinder banks from daily run, and at last, the meet of the debt obligations makes those banks suffer from unacceptably large loss.